Senate Debates Banking Reform Bill

March 7, 2018

On March 6, the Senate, in a bipartisan manner, agreed to open debate on a wide-ranging bank deregulation bill, S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act. The vote to begin consideration of the bill was 67-32, with 16 Democrats plus Maine independent Angus King voting in favor of the move. Beyond the bill’s 12 Democratic co-sponsors, plus King who is also a co-sponsor, four additional Democrats agreed to proceed with debate: Sens. Debbie Stabenow (Mich.), Jeanne Shaheen (N.H.), Maggie Hassan (N.H.) and Bill Nelson (Fl.). The Senate is expected to pass the bill as soon as Thursday, though it could take longer.

The bill intends to modernize regulations in a way that makes sense for small financial institutions, benefiting consumers and encouraging economic growth. S. 2155 would modify provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) and other laws governing regulation of the financial industry. The bill would change the regulatory framework for small depository institutions with assets under $10 billion (community banks) and for large banks with assets over $50 billion. The bill also would make changes to consumer mortgage and credit-reporting regulations and to the authorities of the agencies that regulate the financial industry.

The bill’s highlights include, among other things:

The bill deems mortgage loans held in portfolios by insured institutions with less than $10 billion in assets to be “qualified mortgages” under the Truth in Lending Act (TILA), and removes the three-day waiting period for TILA-RESPA Integrated Disclosures if the second credit offer is a lower rate. The bill also instructs the Consumer Financial Protection Bureau (CFPB) to provide “clearer, authoritative guidance” on certain issues such as the applicability of TRID to mortgage assumptions and construction-to-permanent loans. Additionally, the bill eases appraisal requirements on certain mortgage loans and exempts small depository institutions with low mortgage originations from certain HMDA disclosure requirements.

The bill exempts community banks from Section 13 of the Bank Holding Company Act if they have, “less than $10 billion in total consolidated assets, and total trading assets and trading liabilities that are not more than five percent of total consolidated assets” – effectively allowing for exempt banks to engage in the trading of, or holding ownership interests in, hedge funds or private equity funds. Additionally, the bill raises the threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement and the qualification for certain banks to have an 18-month examination cycle from $1 billion to $3 billion.

Includes in an adopted “manager’s amendment,” the bill requires credit bureaus to provide consumers unlimited free security freezes and unfreezes. The bill also limits certain medical debt information that can be included on veterans’ credit reports.

The bill raises the threshold for applying enhanced prudential standards from $50 billion to $250 billion. Banking organizations with total assets between $50 billion and $100 billion would become exempt from Dodd-Frank’s enhanced supervision requirements upon the bill’s enactment, whereas banking organizations with assets between $100 billion and $250 billion would generally become exempt 18 months after the bill’s enactment. For banking organizations with assets of less than $250 billion, the Federal Reserve Board would retain the authority to apply enhanced prudential standards on a case-by-case basis, if appropriate.

Requires the banking agencies to create a “community bank leverage ratio” of not less than 8 percent and not more than 10 percent that would be applicable to depository institutions with total consolidated assets of less than $10 billion. A community bank that meets the community bank leverage ratio would be deemed to have met generally applicable leverage capital and risk-based capital requirements and be considered well capitalized under the Federal Deposit Insurance Act.

Raises the asset threshold for required company-run stress tests by banking organizations from $10 billion to $250 billion, and requiring such stress tests to be on a “periodic” instead of an annual basis.

Exempts from the Volcker Rule’s proprietary trading and covered fund prohibitions any banking organization that has less than $10 billion in total consolidated assets, and total trading assets and trading liabilities that are not more than 5% of total consolidated assets.

2155 also would address diverse matters not specifically relating to the Dodd-Frank Act, including requiring short-form call reports for smaller community banks; adding additional credit protections for homeowners, veterans, and seniors; facilitating consumer access to online banking services; and calling for studies and reports on the risks of cyber threats to capital markets and financial institutions in the United States, the effects of algorithmic trading in equity and debt markets, and the structure and activities of consumer reporting agencies.

During the markup in the Senate Banking Committee, a Manager’s Amendment was adopted. The Manager’s Amendment, which can be accessed here, includes eight agreed-upon amendments which propose additional technical changes to the bill, as well as further credit bureau reforms, NCUA transparency measures, and additional consumer protections.

As debate on the bipartisan banking regulatory reform legislation continues in the Senate this week, the bill’s author, Senate Banking Chairman Mike Crapo (R-Idaho), is expecting “significant additions” to the current text of the bill and looking to maintain bipartisanship. House Financial Services Committee Vice Chairman Patrick McHenry (R-S.C.) recently stated that the House will likely pass the Senate bill by the August recess.